2018 (9) TMI 868 - AT - Income Tax

Revision u/s 263 - issue of non-deduction of TDS on certain payments as reported in column No. 34(a) of Tax Audit Report remained to be examined by AO to consider disallowance u/s 40(a)(ia) - Held that - The perusal of chronology of events makes it crystal clear that AO, during assessment proceedings, was clinched with the issue of TDS compliance on expenditure claimed by the assessee and had raised specific queries in this regard. The requite details / response / reply to the same was duly furnished by the assessee from time to time, apparently, to the satisfaction of Ld. AO since no disallowance u/s 40(a)(ia) has been made in the quantum assessment order. We find that it is not a case of lack of inquiry or inadequate inquiry which warrants exercise of revisional jurisdiction u/s 263 by higher authorities. AO, with due application of mind, examined the claim of the assessee in this regard and took a conscious decision not to make any disallowance u/s 40(a)(ia). Nothing on record suggest that the view of the Ld. AO was erroneous, in any manner. This being the case, the order of Pr.CIT, in invoking jurisdiction u/s 263 could not be sustained and the same, in our opinion, was bereft of any merits. Therefore, we quash the same and restore the quantum assessment order of Ld. AO. - Decided in favour of assessee.

Issues Involved:
1. Validity of Notice issued u/s 263.
2. Examination of TDS details during the assessment.
3. Conditions precedent for passing an Order under Section 263.
4. Determination of whether the assessment order was erroneous and prejudicial to the interest of revenue.
5. Jurisdiction and legality of the Order passed u/s 263.

Issue-wise Detailed Analysis:

1. Validity of Notice issued u/s 263:
The assessee contested the invocation of revisional jurisdiction u/s 263 by the Principal Commissioner of Income-Tax (Pr.CIT), arguing that the notice issued was null and void. The Pr.CIT issued the notice on the grounds that the Assessing Officer (AO) did not examine the issue of non-deduction of TDS on certain payments as reported in the Tax Audit Report, which could lead to disallowance u/s 40(a)(ia).

2. Examination of TDS details during the assessment:
The assessee argued that complete details regarding TDS were filed during the course of assessment proceedings, and the issue of TDS compliance was duly examined by the AO. The Pr.CIT, however, rejected this claim, stating that the items reported in the Tax Audit Report were not examined, and the assessee failed to submit evidence supporting their claim that the data was erroneous due to clerical error.

3. Conditions precedent for passing an Order under Section 263:
The Pr.CIT held that the conditions precedent for passing an Order under Section 263 were satisfied, as the AO did not disallow expenses on which TDS was not deducted, leading to under-assessment. The assessee argued that the assessment order was passed after due consideration of facts and law, and the Pr.CIT's order was ultra vires and void.

4. Determination of whether the assessment order was erroneous and prejudicial to the interest of revenue:
The Pr.CIT found the assessment order dated 13/10/2016 to be erroneous and prejudicial to the interest of revenue, as the AO failed to disallow expenses on which TDS was not deducted. The assessee contended that the AO had made adequate inquiries and took a conscious decision not to make any disallowance u/s 40(a)(ia).

5. Jurisdiction and legality of the Order passed u/s 263:
The tribunal examined whether the AO had conducted necessary inquiries and whether the Pr.CIT's invocation of jurisdiction u/s 263 was justified. It was found that the AO had raised specific queries regarding TDS compliance during the assessment proceedings, and the assessee had furnished requisite details and responses. The tribunal concluded that it was not a case of lack of inquiry or inadequate inquiry, and the AO had applied his mind and took a conscious decision.

Conclusion:
The tribunal quashed the order of the Pr.CIT, holding that the invocation of jurisdiction u/s 263 was not justified. The AO had made adequate inquiries and took a conscious decision regarding TDS compliance, and the assessment order was not erroneous or prejudicial to the interest of revenue. The tribunal restored the quantum assessment order of the AO, citing the decision of the Hon’ble Bombay High Court in Moil Ltd. Vs. CIT, which held that if a query is raised and responded to during assessment proceedings, the mere fact that it is not dealt with in the assessment order does not imply non-application of mind by the AO. The appeal was allowed, and the order pronounced in the open court on 12th September 2018.

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